This website uses cookies to give you the best user experience, for analytics, and improvement of functionalities of this website and third party sites. You can learn more about our use of cookies and similar technologies and your choices by reviewing our Cookies Policy. By clicking "I agree" you agree to our use of cookies and similar technologies.

The item you have requested is not currently available in English and you have been redirected to the next available page. You may use your browser's back button to return to the item you were viewing.

Dentons is pleased to announce that the Firm has been ranked in 99 categories in the 2018 edition of The Legal 500 UK, and a total of 226 Dentons lawyers have been recognised across their respective practice areas.

In Lee v. Ashers Baking Company Limited and Others, the Supreme Court considered whether a bakery's refusal to supply a cake with a slogan supporting gay marriage was discriminatory on the grounds of sexual orientation or political opinion

With 174 locations in 78 countries, Dentons is home to top-tier talent that is found at the intersection of geography, industry knowledge and substantive legal experience. Working with Dentons, you will have the opportunity to learn from the best lawyers in the industry at the largest law firm in the world.

Dentons, the world’s largest law firm, has launched a new Market Insights publication entitled “Digital Transformation and the Digital Consumer”, which examines the legal implications of the online economy.

Dentons is pleased to celebrate the first anniversary of the Firm's combination with Maclay Murray & Spens, creating a UK footprint of six offices: three in England (London, Milton Keynes and Watford) and three in Scotland (Glasgow, Edinburgh and Aberdeen).

SEC Modifies Definition of "Accredited Investor"

SEC Modifies Definition of "Accredited Investor"

Rule Change Could Require Closer Adherence to Rule 701Limits

Regional Capabilities:

January 13, 2012

The US Securities and Exchange Commission has adopted a final
rule implementing a new requirement that the value of an
individual's primary residence be excluded when determining whether
the individual is an accredited investor. The Rule
(SEC Release No.
33-9287) was adopted December 21, 2011, to take effect
on February 27, 2012. However, the substantive exclusion was part
of the Dodd-Frank Wall Street Reform and Consumer Protection Act
("Dodd-Frank"), which took effect immediately on passage of
Dodd-Frank on July 21, 2010.

The "accredited investor" standards under the Securities Act of
1933 (the "'33 Act") are used in determining the availability of
certain exemptions from registration for certain securities
offerings: Section 4(5) of the '33 Act exempts offers or sales by a
company solely to one or more "accredited investor" if the
aggregate offering price does not exceed $5 million and certain
other conditions are met. Under Rule 505 or 506 (pursuant to
Regulation D under the '33 Act) a company does not have to satisfy
certain information requirements if sales are made only to
accredited investors; and sales to accredited investors do not
count toward the 35-purchaser limits under Rule 505 and 506.

The definition of "accredited investor" includes any
person who fits within any of eight specific categories at the time
of the sale (or whom the company believes fits in a category). The
category affected by Dodd-Frank and the new SEC Rule is the
category of "individuals with more than $1 million in net
worth." Under Dodd-Frank and the new SEC Rule, the individual's
"primary residence"1 is not included as an asset, and thus
cannot be counted toward the individual's net worth. Debt secured
by the primary residence (i.e., a mortgage) is excluded as a
liability in determining net worth for this purpose, unless the
mortgage is "upside down," in which case the amount by which the
indebtedness exceeds the value of the primary residence counts as a
liability. To discourage people from mortgaging their homes to buy
unregistered securities, any mortgage incurred in the 60 days prior
to the sale does count as indebtedness, and would thus reduce net
worth for the "accredited investor" calculation.

The only transition provision in the new SEC Rule is one that
grandfathers "accredited investor" status with respect to rights to
purchase securities (e.g., options) held on July 20, 2010 if the
individual was an "accredited investor" on the basis of net worth
when the right was acquired and the individual also held
other securities of the same company on July 20, 2010.

These exemptions for "accredited investors" can also be
significant for companies making compensatory equity grants in
reliance on Rule 701 for exemption from registration. Rule 701 is
not integrated with other exemptions and thus the company can
exclude offers and sales under Rule 505 and 506 (and may thus grant
equity awards to "accredited investors") without having those
awards count toward the limitations on the amount that may be
offered or sold under Rule 701. The need to find exemptions outside
Rule 701 may arise, for example, on a review of the company's
equity awards in anticipation of an IPO or in preparation for being
acquired.

Given the high proportion of an individual's net worth that may
be represented by his or her primary residence, the exclusion of
that value may change the "accredited investor" status of some
employees. Some companies may have been relying on certain
employees' status as "accredited investors" to award equity in
excess of the amount that would be within the ambit of Rule 701.
For companies that need to rely on the "accredited investor"
exclusion as well as Rule 701, the impact of the new Rule could be
significant and, at a minimum, will require the company to
re-examine the accredited investor status of employees. The impact
will, of course, vary from company to company.

Even where a company relies on "accredited investor" status as
well as Rule 701, some individuals may qualify for "accredited
investor" status under other criteria (e.g. income of at least
$200,000 in each of the two most recent years (or $300,000 together
with their spouse) and with a reasonable expectation of reaching
the same level in the current year). The determination of these
categories of "accredited investor" were not affected by
Dodd-Frank. This may mitigate any adverse effect of excluding the
value of the primary residence from the net worth calculation.

Dodd-Frank also requires the SEC to review the "accredited
investor" definition in its entirety and make further rules as it
deems appropriate, beginning in 2014 and every 4 years thereafter.
Therefore there could be additional changes to the definition in
the future, even without additional legislation.

The term "primary residence" does
not have a specific definition. The SEC stated in the Release
accompanying the new Rule that "primary residence" has a commonly
understood meaning as the home where a person lives most of the
time.

* * *

IRS Circular 230 Notice: Any Federal tax advice contained
herein is not to be used for, and the recipient cannot use such
advice for, the purpose of avoiding any penalties asserted under
the Internal Revenue Code. If the foregoing contains Federal tax
advice, and if the foregoing is distributed to a person other than
the addressee, each additional and subsequent reader hereof is
notified that such advice should be considered to have been written
to support the promotion or marketing of the transaction or matter
addressed herein. In that event, each such reader should seek
advice from an independent tax advisor with respect to the
transaction or matter addressed herein based on such reader's
particular circumstances. These materials should not be considered
as, or as a substitute for, legal advice and they are not intended
to nor do they create an attorney-client relationship. Because the
materials included here are general, they may not apply to your
individual legal or factual circumstances. You should not take (or
refrain from taking) any action based on the information you obtain
from this document without first obtaining professional counsel and
you should not send us confidential information without first
speaking to one of our attorneys and receiving explicit
authorization to do so.

Disclaimer

Unsolicited emails and other information sent to Dentons will not be considered confidential, may be disclosed to others, may not receive a response, and do not create a lawyer-client relationship. If you are not already a client of Dentons, please do not send us any confidential information.